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Funding of high-cost drugs by health payers has – and will always be – a
contentious issue. The process is extremely complex, and is based
around the costeffectiveness of a medicine in the longer term, rather
than merely the acquisition cost. From a negotiation perspective,
conflict exists between the emotional principles of allowing patients
access to potentially life-saving medicine, and the rational, logical
argument by payers that there is only a certain amount of money in the
pot. Throwing more cash at the problem is not the solution, however –
that is why payers will focus upon getting the most out of their money.
The ‘Trust’ Word
It
is probably true to say that building trust is one of the
pharmaceutical industry’s biggest challenges when dealing with its
customers. The revenues made by pharma companies do not sit comfortably
with them, despite the industry’s justifications that only three in 10
drugs launched make any profit. Healthcare professionals must treat as
many patients as possible within tight budget constraints, while the
industry needs to deliver shareholder value and return on investment for
the millions spent on R&D every year.
There is clearly a
commercial conflict of interest – but despite this, both parties still
conduct business through structured negotiation processes and regulatory
guidelines. Most value is gained through collaborative negotiations,
where there is a relatively high level of trust between both parties.
However, with low levels of trust, negotiations become adversarial and
competitive, resulting in costs being the focus of attention. It can,
therefore, be challenging to work in partnership for the common good of
patients. The following outlines prevalent negotiation principles with
payers, and what to look out for in the process.
Beware of Rose-Tinted Spectacles
The
licensing and launch of any new drug inevitably brings with it an
element of excitement and hope within the business. This product will
solve all the customers’ problems, and you cannot wait to make them
aware of it. However, payers are probably not as enthusiastic about the
new drug as you are, and it is certainly not at the front of their
minds. They have their own agenda – just as you do – and this agenda
will affect their approach to any negotiation. Of course, there are
exceptions to the rule. Many years ago, I belonged to the market access
team launching a new treatment for erectile dysfunction into the UK
market. I remember the unusual situation of payers phoning me for
appointments, because they were so anxious about the budgetary
implications of the launch. It was clearly top priority for both
parties.
Do Not Negotiate Too Soon
This issue is not
unique to pharma. Before you earn the right to negotiate, it is critical
to ensure that the sales process has been thoroughly delivered. If the
customer will not buy into the product, even the best negotiator in the
world is going to struggle to secure the deal. It is, therefore,
completely inappropriate to start negotiating terms – such as first line
positioning, price and contract length – before the customer has
confirmed that the drug is a viable treatment option. Selling is about
identifying and satisfying a customer’s need; when we negotiate, the
need has already been identified. It is now down to agreeing terms.
Justifying Price
Inexperienced
negotiators often fall into the trap of justifying the reasons why the
customer should buy, after the price has been put on the table. They do
this because they believe they are strengthening their case. However,
experienced negotiators consider justification to be a weakness. It is
an easy trap to fall into for a couple of reasons. Firstly, if the
seller feels they have not convinced the buyer enough of the benefits of
the product, they will continue to sell. Secondly, experienced
negotiators are trained to reject proposals, irrespective. The objection
triggers a response from the seller, who continues to talk – rather
than utilising self-control to remain silent.
The most effective
way of reducing the risk of justifying is to ensure a clear positioning
statement at the onset, before the price is mentioned. This is a
simple, concise sentence which is designed to put your expectations at
the front of your counterpart’s mind. For instance: “This unique,
cost-effective new treatment, with its quality safety and efficacy
evidence, will soon establish itself as the gold standard in the
therapeutic area.” This statement clearly emphasises how this product
stands out from the crowd, and the buyer should be left in no doubt that
this is not a ‘me too’ product.
Understanding the Balance of Power
Clients
tell me that they often enter into a negotiation with the impression
that the other party holds all the power. They may feel on the back foot
and under pressure to secure the deal, and their behaviour will,
consequently, reflect this. For example, if there are a number of
competitors in the market that are similar to your offering, you will
naturally feel in a weaker position. Power is more often perceived than
real, so it is important to understand the factors that affect your
ability to negotiate. These will include time pressure, circumstances in
the business or market place, and the number of options available to
the other party and to you. The latter is particularly crucial; having
options gives you more control to negotiate – in other words, if your
customer is dependent on your product, then you are likely to have most
of the power, whereas you have very little power in a market of copycat
products. Consider, therefore, how you think through the factors that
affect the balance of power before each negotiation.
Playing by Someone Else’s Rules
Other
people’s rules restrict our ability to negotiate, so in a market as
heavily regulated as pharma, there is likely to be a lot of red tape.
You have a choice to follow the rules and toe the line, or set the terms
of engagement yourself. An example of playing to someone else’s rules
includes engaging in tenders, where the buyer plays suppliers off
against each other in order to obtain better terms. Consider the impact
of putting your proposal on the table first, rather than responding to
the other party’s – it puts you in control and tends to put the other
party on the back foot.
Know Who You Are Negotiating With
Pharma
clients tell me that they often negotiate with committees or board
members within organisations. I tell them that is not the case – they
negotiate, simply, with people. What is more concerning is that they
sometimes do not personally know their counterparts, let alone have a
business relationship with them. It is crucial, therefore, to recognise
individuals’ interests and their motivations for making decisions, and
to make an effort to identify each person in the decision-making process
and what is important to them. Of course, access to these people is
sometimes restricted, but it is vital to understand the key players.
Understanding the Variables
Inexperienced
negotiators restrict the number of variables they have at their
disposal. What I mean by this is that many individuals will bargain with
what they are familiar with, rather than exploring all the possible
factors relevant to each party. For example, the seller may be familiar
with variables such as price, first line positioning and volume
discounting. The payer, on the other hand, prioritises factors such as
quality-adjusted lifeyear thresholds, average expected use or drug
indication positioning. Funding based on outcomes has become a new
negotiable variable in many healthcare systems, where the payer is only
liable for reimbursing cases when treatment is successful. This seems
logical and appears to be a true win/win situation for both parties, but
of course it is a lot more complex to implement in practice.
Nevertheless, it is those negotiators who think creatively and explore
all possible variables that will become most successful.
Preparation is Everything
This
is by no means an exhaustive list of principles when negotiating such
complex agreements with payers. However, putting careful thought and
consideration to each issue before any dialogue with the other party
will help make you a better negotiator and, ultimately, prepare you for
success.
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